Debt collectors shouldn’t be tax collectors
The federal government needs money. I get it.
The Internal Revenue Service has a significant number of overdue tax debts it needs to collect. More than 5 million taxpayers were delinquent near the end of April, according to the agency.
But a proposal to allow the IRS to turn over those delinquent accounts to private debtcollection agencies isn’t the solution. It’s a bad idea, used before — in the late 1990s and again in the past decade. Both times the outsourcing failed.
Many people are already scared of the IRS if they owe money. I see little upside to this already tenuous relationship if we return to having private collection agencies go after tax delinquents.
This is also what Nina E. Olson, the national taxpayer advocate, said in a 21-page letter to the chairmen and ranking members of the congressional tax-writing committees. Olson noted that she and the Office of the Taxpayer Advocate were involved in the private debt-collection program between 2006 and 2009.
“Based on what I saw, I concluded the program undermined effective tax administration, jeopardized taxpayerrights protections, and did not accomplish its intended objective of raising revenue,” Olson wrote.
“Indeed, despite projections by the Treasury Department and the Joint Committee on Taxation that the program would raise more than $1 billion in revenue, the program ended up losing money. We have no reason to believe the result would be any different this time.”
Olson is also concerned that collection efforts would put a “bull’s-eye on the backs of lowincome taxpayers,” who make up an overwhelming majority of folks whose accounts would be turned over to debt collectors.
“I believe it would be unconscionable for Congress to create a government-sponsored debt collection program that, even if inadvertently, targets such a high percentage of lowincome taxpayers,” she wrote.
I fear, as Olson does, that private debt companies driven to collect as much revenue as possible will result in overly aggressive collection tactics, including pressuring people to agree to payments they can’t possibly afford. If someone then defaults, it can cost more money to go back and establish a fairer payment plan.
The Federal Trade Commission has been regularly going after and sanctioning debt collectors for bad and illegal behavior. Debt collection is among the top consumer complaints received by the FTC.
Here’s something else about the pending tax-collection legislation that should cause concern: It would require the IRS to send delinquent cases arising from the Affordable Care Act to private debt collectors.
The collection agencies could get cases under two scenarios. With the Affordable Care Act, people shopping on the health exchange may qualify for a tax credit to help pay for insurance. But consumers who receive too much of this subsidy must pay back the excess.
Additionally, individuals and their dependents are required to have minimum essential health insurance unless they qualify for an exemption. If it’s determined they were in the financial position to pay for coverage and don’t fall under an exemption, they face a penalty for being uninsured, which they have to pay when they file their federal income-tax returns.
The IRS is responsible for collecting in both instances. The IRS can snatch refunds to satisfy the debt. However, the agency is prohibited from using its usual tough collection tools to collect payments.
“If debt collectors come to be seen as the public face of the ACA, I am concerned that could make the IRS’ job more difficult as it tries to balance its twin missions of revenue collection and benefits administration,” Olson noted.
The proposal was introduced by Sen. Charles Schumer, DN.Y., and has bipartisan support. But some congressmen and a consortium of 15 civilrights and consumer groups, who also penned a letter to senators, oppose the plan, as does the IRS Oversight Board, a nine-member independent body charged with overseeing the IRS.
The board also sent a letter to Senate and House leadership objecting to the proposal to use private debt collectors.
“The experiment has failed twice, and there is nothing to lead us to believe it will not fail again,” the board said.
Fool me once, shame on you. But fool me twice, shame on me. Using private collection agencies for tax debt is a foolish, foolish idea.
Michelle Singletary writes for the Washington Post Writers Group.